Sales taxes can be difficult to manage for a company based on the Internet. In this area a brick and mortar store, whether they are independent or part of a chain, has a distinct advantage. Processes vary state to state, and sometimes even county to county and city to city. The rules for registering, filing and paying taxes can become very complex very quickly.
Florida Case Study
For a standard brick & mortar store the common practice is to register with the local city and state and to obtain a license for doing business in that state. For a business in Florida, you would file with the Department of Revenue, which can now be done via the Internet at http://www.myflorida.com/dor/. Payments and forms are completed and filed quarterly. Depending on the size of your business and the revenue collected, the forms are filed on-line or by mail. Florida works to make the process as easy as possible for a company. Beginning in January of 2003 electronic payments will be mandatory for many companies.
Businesses with multiple locations are required to file a separate application for each location. These companies must track separately the collections so they can be reported appropriately. Some counties and cities add incremental taxes charged above and beyond the 6 percent state base tax. This means taxes collected at different locations can be for a different amount. It is the responsibility of the business owner to ensure that the appropriate taxes are collected, reported and paid to the state for disbursement.
Florida is very advanced in the development of a web site detailing tax information for business owners and utilizing the Internet for payment and filing of the taxes. Ironically, Florida provides no information on-line for an Internet retailer with some nexus in the state. Instead, the business owner must call or write a letter to the state to obtain appropriate information. As research for this paper, I spent considerable time searching the Florida Department of Revenue Web Site for some information related to internet sales. I was not able to locate anything other than a phone number and mailing address.
Florida has chosen to burden residents of the state with payment of sales taxes for products purchased outside of the state and brought or shipped into the state. Florida has deemed this a “use tax” and is very clear that it must be managed and paid by its citizens. Failure to comply can be quite expensive as well. Quoting from the Florida Department of Revenue, tax form DR-15MO:
Florida law imposes a 6 percent sales tax on out-of-state purchases if the sales tax was not paid at the time of purchase. The tax applies to items purchased outside Florida, including another country, which would have been taxed if purchased in Florida. Examples include: purchases from mail-order catalogs, purchases made through the Internet, purchases made in another country, furniture purchased from dealers located in
another state, or computer equipment ordered from vendors advertising in magazines. If the out-of-state seller fails to collect sales tax, the burden to voluntarily comply with Florida law is yours. You must submit payment directly to the Florida Department of
Revenue. This payment is required by section 212.06(8), Florida Statutes.
Normally, the Department will waive penalties for taxpayers who voluntarily make payment of tax liabilities. Failure to voluntarily comply with Florida tax laws subjects you to penalties up to 50 percent of the tax due (Out-of-state Purchase Return).
According to census information posted by the state of Florida on its own web site, the state of Florida had a population of 16.33 million residents as of April 1, 2001. I wonder how many of these residents have filed and paid the usage tax for purchases as described above. I wonder how many residents even know they are supposed to file and pay the tax.
Alabama Case Study
Some states do not offer centralized processing of tax forms and payments. Alabama, though progressive by placing information on the Internet and even allowing electronic filing, is one of those states. In Alabama, business owners are required to contact the local cities to obtain tax information. Fortunately, Alabama’s Department of Revenue web site, located at http://www.ador.state.al.us/, does provide contact information for each of the cities and counties that must be contacted directly. However, any company doing business in this state must take the time and energy to contact each of these local governments, obviously a daunting task for small and large companies alike.
Alabama taxes goods at multiple rates, unlike Florida which has a general 6 percent sales tax rate. The sales tax in Alabama is 1.5 percent for farm machinery on the “net difference paid” and up to 4 percent of gross receipts for personal property. Food purchased from vending machines is taxed at 2 percent. Food at grocery stores is not taxed. Combined with local variations, companies with nexus in various parts of Alabama would have a challenge to properly calculate, collect and report on the sales taxes due to the state.
Alabama has a Consumer’s Use Tax similar to the state of Florida. Residents of Alabama are required to calculate and pay this tax “on tangible personal property brought into Alabama for storage, use, or consumption in the state when the seller did not collect seller’s use tax on the sale of the property” (Alabama Department of Revenue Frequently Asked Questions).
Alabama does provide information for those that sell products on the internet or otherwise with nexus in the state. Retailers are required to collect the sales tax for the state and also for each and every local government that imposes their own seller’s use tax. The retailers are not only required to collect this tax, but they bare the responsibility for reporting and paying the taxes to the local governments. If taxes are not collected because a company does not have nexus in the state, then the burden falls to the consumer as noted above. I wonder how many residents from Alabama are not in compliance with the Consumer Use Tax.
The burden on companies and individuals should not be underestimated. Companies making one or two sales to an obscure town must still be versed in that town’s tax rules and process them appropriately. If the laws change in that town, companies must make sure they make timely adjustments to their calculation, collection and payment process.
Consumers probably don’t even know they are in violation of the use tax. Alabama does allow out of state companies the option of collecting a sales tax, even if no nexus applies, so they may provide the service of collection to their consumers. This all gives new meaning to the old country fear of the “revenuer”. A company certainly does not want to subject itself to a potential fine due to a small sales tax collection.